CHINA

People's Republic of China

Zhonghua Renmin Gongheguo

COUNTRY OVERVIEW

LOCATION AND SIZE.

China is situated in the eastern part of Asia, on the west coast of the
Pacific Ocean, in the southeastern part of the Eurasian continent,
bordering the East China Sea, Korea Bay, Yellow Sea, and South China
Sea, between North Korea and Vietnam. Its border countries include
Afghanistan, Bhutan, Burma, (Hong Kong), India, Kazakhstan, North Korea,
Kyrgyzstan, Laos, (Macau), Mongolia, Nepal, Pakistan, Russia,
Tajikistan, and Vietnam. The land area consists of 9,596,960 square
kilometers (3,696,000 square miles), the third largest in the world
after Russia and Canada. The country's coastline is 14,500
kilometers (9,010 miles) long. China is divided into 22 provinces, 4
municipalities, 5 autonomous regions, and 2 special administration
regions (Hong Kong and Macau). Beijing, the capital, is also the
cultural and educational center of China. The city has an area of 65
square kilometers (25 square miles) and is partially surrounded by walls
that were built in the 15th century.

POPULATION.

The population of China was estimated at 1,262 million in July of 2000,
an increase of 10.36 percent from the 1990 population of 1,143 million.
In 2000 the population growth rate was estimated at 0.9 percent, the
birth rate was 16.12 per 1,000, and the death rate was 6.73 per 1,000.
With a projected annual population growth rate of 0.9 percent between
2000 and 2010, the population is expected to reach 1,392.5 million in
2010. A simulation study conducted by the China State Statistics Bureau
indicates that country's total population will peak at 1,402 to
1,550 million in the 2030s or 2040s.

The population of China consists of 56 ethnic groups. Han Chinese make
up 91.9 percent while Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu,
Mongol, Buyi, Korean, and other ethnic minorities make up 8.1 percent.
The great majority, 68 percent of the population, is between ages 15 and
64; while 25 percent is at the age of 14 or below, 7 percent is at 65 or
older. The life expectancy at birth in 2000 is estimated at 71.4 years
(total population), 69.6 years (male) and 73.3 years (female). The
country's high life expectancy and low infant mortality rates are
envied by much richer nations.

In 1949, when China became a
communist
nation, the population was about 541 million. Over the following 10
years, it increased by another 118 million. It continued to rise through
the 1960s. The government encouraged this increase so China could
develop water control and communication infrastructures. The government
also thought increased production could help produce more food and
strengthen the nation's defense. Twenty years later, the millions
born during that period contributed to another baby boom. By 1970, there
were roughly 830 million Chinese. The over-growing population had
generated serious problems and negatively affected the national economy.

To slow the population growth the government introduced a
one-child-per-family policy in the late 1970s.

The policy was created not only to deal with the huge population
problem but as a prerequisite for the social and financial planning
necessary in a
socialist
system. The policy is more strictly enforced in urban areas and is
unpopular in the rural areas where male children are more important.
However, it is enforced enough to make most couples obey it. With the
introduction of the one-child policy, the population growth has slowed,
with probably 250 million fewer births since 1979. Two types of obvious
changes in population have taken place. First, the people are aging. The
number of people 65 or older is estimated at 87.8 million in 2000 and is
expected to be 167 million by 2020, compared with an elderly population
of 66 million in 1990. Second, the population is becoming more urban.
For instance, the urban population was at 297 million in 1990, up 90
million from 1982. During the same period, the populations of the 2
largest cities, Beijing and Shanghai, have increased 17 percent and 13
percent respectively.

Overpopulation is the number-one global problem. Many people question
controlling population through legislation. Even after the 20 years that
the Chinese civilization has trusted this solution to solve their
problem, some still violate the policy. However, this does not imply
that legislative control is wrong, especially when dealing with the
extremes facing China. Backers of China's population policy say
that such state-mandated birth control and family planning is necessary
not only for the well-being of China but for that of the whole world.

RAILWAYS.

China has an estimated 69,412 kilometers (43,131 miles) of railroad.
Every province-level administrative unit except Tibet was served by
rail, and plans were being made to extend a line south from the
Lanzhou-Urumqi line to Lhasa, in Xizang (Tibet). Railways have been the
most important tools for transportation in China. For example, more than
50 percent of the country's traffic is moved by the railroad
system. China's railway network consists of a series of
north-south trunk lines, crossed by a few major east-west lines. Most of
the large cities are served by these trunk lines, forming a nationwide
network, with Beijing as its hub.

ROADS AND HIGHWAYS.

China has 1,209,800 kilometers (751,894 miles) of highway in total,
among which 271,300 kilometers (168,586 miles) are paved (with at least
24,474 kilometers or 15,200 miles of expressways). The network of
all-weather roads and highways is not a unified national system with
consistent standards; the conditions of many of the roads are poor.
Despite its shortcomings, the road network is probably adequate to meet
the country's current needs. China has a small number of cars,
trucks, and buses as compared with the United States or Japan. In the
early 1990s there were about 7 million motor vehicles, two-thirds of
which were trucks and buses. It produces about 200,000 trucks annually
and limited automobiles. An increasing number of cars are owned
privately, which will lead fast demand for qualified highways. The
highway network accounts for only about 2 percent of total freight
traffic.

AIR TRANSPORTATION.

China set up the General Administration of Civil Aviation of China
(GACAC) after 1949, which has continued to serve as the nation's
domestic and international air carrier. Most major cities are served by
domestic flights, and a few large cities like Guangzhou, Shanghai, and
Beijing have international service. GACAC planes fly to Europe, Japan,
the United States, and South Asia. Some provincial and urban authorities
operate intercity airlines that carry passengers and freight. There are
206 airports (1996 est.), among which 192 have paved runways.

POWER.

China's power sector has performed impressively in support of
economic growth during the past twenty years. Faced with the need to
expand its power capacity, the state is investing heavily in the
construction of new power plants and self-financing capability. Equally
significant in the development of the national power sector are the
establishment of regional power grids and the implementation of an
electricity
tariff
reform to tackle the problems of inefficient power distribution and
usage. Electrical power is supplied mainly by the state-owned
enterprises. China has effectively
restructured
its power industry by closing a large number of small thermal power
plants with high coal consumption, heavy pollution, and poor economic
efficiency. According to the official statistics, the country generated
1.16 trillion kilowatt hours (kWh) of electricity in 2000, a 6 percent
increase from the previous year; the country has made headway in
building and renovating 87 urban power grid projects and 1,590 rural
ones. China has also developed its enormous hydroelectric potential so
that a larger share of its domestic demand for electric power can be met
with renewable hydropower. Renewable hydropower is tapped from moving
water such as waterfalls and fast-moving streams.

The reform and opening up policies have brought great leaps and bounds
to the development of the country's
nuclear power industry. Meanwhile, China attracts foreign funds to
supplement the domestic shortage of funds in power construction and to
upgrade the technological equipment of the power industry. According to
the statistic communiqué of the PRC on the 1998 national economic
and social development issued in February of 1999, the newly-increased
annual production capacity in 1998 through capital construction projects
included 16.9 million kilowatts of power generation by large and
medium-sized generators and 47.26 million kilovolt-amperes of power
transformer equipment (including 7.79 million kilovolt-amperes of
updated power grid in urban and rural areas). China is the country to
deliberate the biggest nuclear power station construction plan in the
world. According to the central government's plan, by year 2020,
China will possess 40,000,000 KM of nuclear power installed capacity.

COMMUNICATION.

Considerable effort has been expended on the postal and
telecommunications systems in China since 1949, but they are still far
from meeting Western standards of speed and efficiency. The mail is
mainly carried by the nation's railroad. As is the case with
transportation, the telecommunications system is sufficient enough to
meet the needs of a growing economy. There were 110 million main lines
in use (1999 est.) and 23.4 million mobile cellular phones in use
(1998). Domestic and international services are increasingly available
for private use; an unevenly distributed domestic system serves
principal cities, industrial centers, and most small and middle-sized
towns. Domestically, inter-provincial fiber-optic trunk lines and
cellular telephone systems have been installed; a domestic satellite
system with 55 earth stations is in place. Internationally, China has 5
Intelsat (4 Pacific Ocean and 1 Indian Ocean), 1 Intersputnik (Indian
Ocean region), and 1 Inmarsat (Pacific and Indian Ocean regions), as
well as several international fiber-optic links to Japan, South Korea,
Hong Kong, Russia, and Germany. The country had 673 radio broadcast
stations—369 AM, 259 FM, 45 shortwave—and 417 million
radios. In 1997, the country had 3,240 television broadcast stations,
(of which 209 are operated by China Central Television, 31 are
provincial TV stations and nearly 3,000 are local city stations), and
400 million televisions. In 1999, the country had 3 Internet service
providers (ISPs).

CROPS AND LIVESTOCK.

China's principal food crops are rice, wheat, corn,
gaoliang
(Chinese sorghum), millet, barley, and sunflower seeds. China is the
world's largest producer of rice, and rice accounts for almost
half of the country's total food-crop output. Rice, wheat, and
corn together make up more than 90 percent of China's total food
grain production, and these crops occupy about 85 percent of the land
under cultivation. Grain production has risen steadily since rural
economic system reform started in 1978. There has also been a steady
rise in the output of industrial crops, the most important of which are
cotton, oil-bearing crops (such as peanuts and rapeseed), sugar (both
cane sugar and beet sugar), tobacco, baste fiber (for cordage, matting,
and similar uses), tea, and fruits. Poultry and livestock production,
though rising, remains the weakest sector of Chinese agriculture.
Livestock numbers are high, but the amount of meat produced per animal
is low. Thus, China has 15 percent of the world's livestock and
about 40 percent of its pigs, but it provides only 7 percent of the meat
products and 15 percent of the pork.

FORESTRY.

Despite China's large land area, its forest resources are modest.
Much of the western interior is too high or too dry to support dense
forest stands. In the humid east, the forests were harvested for
centuries for
building material and firewood; limited effort was made to regenerate
them. In 1949, it was estimated that about 8 percent of the total
surface of the country was covered with forests. Since then, an active
program of forestation has been undertaken, and it is estimated that the
forested area has been increased to 12 to 13 percent. In recent years
about 2.5 million acres (1 million hectares) of forestland have been
added annually. The state is aiming to have 20 percent of the
country's surface in forest. In contrast, more than 30 percent of
the United States is forested.

FISHING.

China has a long tradition of ocean and freshwater fishing and of
aquaculture. Pond raising has always played an important role and has
been increasingly emphasized to supplement coastal and inland fisheries
threatened by over-fishing. China produces about 17.6 million tons
yearly, first among the world's nations. More than 57 percent of
the total catch is from the ocean. The remainder comes from rivers,
canals, lakes, and ponds. China's coastal zone is rich in fish.
All the coastal seas have extensive areas of shallow water over the
continental shelf. In these seas, especially the Yellow River and East
China River, cold and warm ocean currents mix, creating an environment
that is particularly suitable for many species of ocean fish, including
croakers, mackerels, tuna, herring, and sharks. Several varieties of
shell-fish and specialties such as squid and octopus are also produced.

MINING.

With one of the largest and richest stocks of minerals of any country,
China has enough minerals to support a modern industrial state. Mining
of all types of minerals is expanding rapidly. The most significant
minerals are coal, iron, tin, copper, lead, zinc, molybdenum, tungsten,
mercury, antimony, and fluorspar. China has the world's largest
coal reserves, which are estimated at more than 600 billion tons. These
reserves would keep
the country supplied with coal for about 500 years, if usage were to
continue at its present level.

PETROLEUM.

The country also has substantial petroleum reserves, both on land and
offshore. Offshore prospecting is under way in several locations, with a
number of Western and Japanese petroleum companies assisting China. Such
minerals as tungsten, aluminum, titanium, and copper have export
possibilities. Extensive deposits and promising sites were located in
1960s. The main production centers are in the North China Plain and in
the Northeast. For instance, Daqing petroleum production basis in
Heilongjiang Province is one of the largest petroleum producers in the
country. Since the mid-1970s, China has been ranked as one of the ten
largest oil-producing countries in the world, with the capacity to
produce more than 1 billion barrels yearly. A small quantity of this
output has been exported for earning foreign currency.

MANUFACTURING.

Chief manufactured products include cement, rolled steel, chemical
fertilizer, paper and paperboard, sulfuric acid, sugar, cotton yarn,
cotton fabrics, cigarettes, television sets, and washing machines.
Generally, the Chinese industrial structure has a higher level of
manufacturing although it is far from high manufacturing in terms of
productivity. Since 1978, the proportion has decreased, largely of
output of low-level manufacturing sectors in light industry with
agricultural products as raw material and mining sectors in heavy
industry, but low-level expansion and repetitious construction in these
sectors are still very serious. Product quality upgrade is still behind
the demand of structures' upgrade, which in turn leads to the
dependence on import of high-level manufactured goods for economic
growth. The proportion of the 2 preceding sectors dropped from 34.1
percent and 8.19 percent in 1985 to27.16 percent and 5.97 percent in
1998, dropping in total by 7.03 percent and 2.22 percent respectively.
Compared with the United States and other developed countries, the
horizontal industrial expansion with low levels of manufacturing causes
low-level malignant competition in the domestic manufacturing sector.
The same effects can be found in high-level consumption of energy and
raw materials. For this reason inflated demands bring about a large
increase of sectors with low technology content and delay upgrade of
industrial structures.

FOOD SERVICE.

Dining out is one of the most important social activities for both
personal and business reasons in China. The food service can be
categorized as fine dining, family restaurants, neighborhood
restaurants, quick-serve restaurants, street vendors, food courts, and
cafeterias operated by the institutions or corporations. Since the
1980s, Western-style chain restaurants have been the driving force for
the development of service, quality, value and distribution in the
Chinese food service industry. A recent survey indicates that China has
approximately 2.2 million restaurants and cafeterias. With the growth of
China's economy, the changing life styles, and increased
disposable incomes
for the potentially largest group of middle-income families in the
world, China is expected to be the new leader in the growth of the food
service industry in the 21st century.

TOURISM.

China is a world-class destination that offers several thousand years of
history and brilliant cultural achievements. Tourism has been designated
as an important growth area under the current national restructuring.
Remarkable progress has been made in China's tourism since 1978,
when it barely existed as an industry. In 1978, on the eve of the
open-door policy, China received a mere 760,000 tourists and US$260
million in tourism-related foreign exchange earnings.

During the 1980s, the state council strengthened its management over
tourism and adopted a policy of enlisting support from all
quarters—the state, the collectives, related ministries or
departments, individuals and foreign investors. China began the
construction of a large number of tourist hotels by using foreign
capital and also improved the ability of its travel agencies to solicit
tourists. In 1988, the national tourism industry earned
US$2.24 billion in foreign exchange, or 10 times the figure in 1978.
Meanwhile, efforts have continued to open up new scenic spots, tap new
visitor sources and improve tourism-related rules and laws. Drawing
experience from developed countries, China improved its management
skills and the overall quality of employees to optimize the environment
for tourism expansion.

In the 1990s, the country began to design special tourism projects. The
Visit China '97 program was a big success, with overseas visitors
hitting 57.6 million and foreign exchange earnings reaching US$12.074
billion, thus catapulting China's place in world tourism earnings
from 41st to 11th. At the same time domestic tourism also reached a new
record with the number of tourists jumping to 644 million and earnings
reaching US$27 billion. As a result, tourism income in the year totaled
over US$38 billion, or 4.1 percent of the GDP. Massive infrastructure
investments and rising living standards helped to stabilize the basic
tourism market and improve the overall environment for tourism
expansion. China's tourism earnings in the year 2000 were
estimated as US$43.9 billion, or 5 percent of the GDP, with US$14
billion in foreign exchange earnings from overseas.

RETAIL.

Retail
was one of the fastest growing sectors in China in the earlier 1990s.
Since retail industry reforms began in 1992, the government has adopted
some new policies highlighted by the proclamation of the Provisional
Rules on Retailing and Wholesaling in June 1999. These policies have
propelled the retail industry through a process of fundamental
transformation. While shopping in the past meant visiting a run-down
department store and choosing from a limited range of low-quality
products, currently the Chinese consumer is exposed to a growing number
of sophisticated retail formats and wooed by a wide range of foreign and
domestic products. The existing retail formats in China are
warehouse/discount stores, supermarkets, department stores, convenience
stores, franchised service or chain-store outlets, specialty stores,
shopping centers, catalogue sales, TV home shopping, and recently
developed
e-commerce
.

One eye-catching development is that local governments, in spite of
central regulations, approved a large number of joint commercial
ventures. Some Chinese retail stores in large cities are even beginning
to hire foreign managers or are being contracted to a foreign management
team. Large
multinational corporations
have made considerable inroads into China's consumer markets.
They do so by forming
joint ventures
with domestic manufacturers to produce and sell their own brand-name
products. By doing so they effectively take over the well-developed
distribution channels of the domestic firms, and consequently their
market shares improve steadily. In this area, Asian businesses
(especially overseas Chinese ones) again enjoy an edge because of their
familiarity with the Chinese consumption culture. They are not deterred
by the lack of policy transparency and inadequate legal infrastructure.
They thrive on personal connections cultivated with state officials and
often regard these as a better guarantee for security. In 2000, the
activities of foreign-invested retailers remained subject to tight
regulation although the government took its first steps towards opening
the retail sector to real foreign participation in 1992. A pilot program
restricted Sino-foreign retail joint ventures to 11 cities, with only 2
such ventures allowed in each pilot site.

BANKING.

The financial sector's main regulatory authority is the
People's Bank of China (PBOC), the country's central bank.
The PBOC controls the money supply, determines interest and deposit
rates, and handles
foreign exchange reserves
through its division, the State Administration of Exchange Control. The
PBOC also supervises banks' operations, uses the credit plan to
administratively control overall lending, and oversees the
People's Insurance Company of China as well as through its
branches, trust and investment companies (TICs).

China has 4 state banks and eleven commercial banks. The state banks
were created in 1984, when specialized banks and part of the monobank
were transformed into commercial banks. The Agricultural Bank of China
provides finance services in rural areas. The People's
Construction Bank of China is responsible for medium- and long-term
finance for capital construction. The Bank of China functions as the
main international and foreign exchange bank, and the Industrial and
Commercial Bank of China, the largest state bank, extends working
capital loans to SOEs for fixed-asset investment. State banks with a
network of branches, newly created affiliates, and special departments
are responsible for implementing the credit plan.

More than 60,000 urban and rural credit cooperatives were established as
an alternative to banks by 1999. Urban cooperative banks, small and
manageable, are structured in a 2-tier system: the upper tier interfaces
with capital markets and acts as a supervisor for the system, while the
lower tier, a number of small-scale banks, handles deposits and loans.
The rural or agricultural cooperative banks, acting under the guidance
of the Agricultural Development Bank, have limited autonomy in
management and lending decisions. Their clients are mainly rural
townships and enterprises.

The state-owned People's Insurance Company of China (PICC) used
to be a
monopoly
insurer. In 1993, it still handled over 95 percent of China's
total insurance business. The new insurance law of 1995 limited the PICC
to commercial insurance business and transferred its social insurance
business to the Ministry of Labor. Currently, although the PICC and
several government financial authorities own 17 regional life insurers,
there are 3 other regional insurers and 2 independent national insurers.
The market for life insurance and household casualty insurance is still
small in China, and corporate customers purchase most casualty
insurance. Most assets have to be deposited with domestic banks in
interest-bearing accounts, while other investments need to be spread
among safe investments and are limited to short-run commitments.

STOCK EXCHANGES.

The Shanghai and Shenzhen Stock Exchanges, China's only 2 stock
exchanges currently, were established in 1990 and 1991, respectively. No
cross listing exists between these 2 exchanges. Since their founding,
securities markets have grown rapidly, especially in the later 1990s.
Securities exchange centers, limited to government and corporate bond
trading only, exist in 18 larger cities. Securities exchange centers
were established in the mid-1980s when SOEs were allowed to sell bonds
to employees, other companies, and, to some extent, to the public.
Securities exchange centers are linked to the stock exchanges through
electronic trading networks.

Chinese companies offer 2 types of shares: A shares, which are
exclusively sold to Chinese nationals, and B shares, denominated in
Renminbi but traded and purchased in foreign currency exclusively by
foreigners originally. By March 2001, B shares could also be purchased
by Chinese citizens using foreign currency. B shares are restricted to
limited liability shareholding companies. To be qualified, companies
must have been profitable for at least 2 consecutive years; must possess
sufficient foreign exchange revenues to pay dividends and cash bonuses;
must be able to provide financial statements and earning forecasts for 3
consecutive years and at the time of listing; and must have a
price-earning ratio of less than 15.

The state planning commission formulates quotas for stock and debt
listings, which sets a figure for the aggregate offering price of
issuances in a given year. The
formulated quotas are then allocated on a provincial level. This
process generates some problems, such as politicized selection and
approval process, lowered quality of issuer with a large number of small
issuers, the lack of predictability in the schedule of announcements of
annual quotas, and the fact that announced quotas change yearly
according to market conditions. Furthermore, the quota system pushes
non-quota activity into unofficial and semi-official channels such as
the securities exchange centers. Because of these problems, it is widely
agreed that the Chinese stock markets are far from formal and mature
and, thus, are full of myth and risks.

FOREIGN PARTICIPATION.

Foreign banks are generally restricted to
hard currency
operations, although the government has announced its intention to
partially open a local currency business to foreign banks in its bid to
join the WTO. Foreign banks are allowed to set up branches and local
subsidiaries and to establish joint venture banks with Chinese partners
in selected cities and SEZs. However, their activities must be limited
to wholesale banking and only a limited number of foreign exchange
transactions such as foreign exchange deposits and loans for joint
ventures, foreign exchange investments and guarantees, and the
settlement of import and export accounts. Foreign non-bank financial
institutions consist of 6 finance companies and 6 fully-licensed
insurance companies. Generally, it takes about 3 years for foreign
insurance companies to obtain a PBOC-issued insurance license.

URBAN-RURAL INCOME INEQUALITY.

Economic reforms have made substantial improvements in the living
standards of rural residents. Since 1978, the farmers boosted their
incomes by engaging in specialized agricultural activities such as
animal husbandry, agriculture, and orchard production, in addition to
raising traditional crops. Furthermore, township and village enterprises
(TVEs) accounted for the bulk of increased wage income earned by the
rural residents. As the result, the disposable income among rural
residents has increased dramatically since the early 1980s. However, in
spite of these improvements, the rise in income of rural residents is
markedly small when compared to that of urban areas. The total rural
incomes are only 40 percent of urban incomes in China when in most
countries rural incomes are 66 percent or more of urban income. The gap
in income between rural and urban residents has grown at an increasing
rate since the late 1980s. In fact, such disparity has been the most
important contributor to the problem of social
equity
in China, followed by inter-regional disparity.

REGIONAL INCOME INEQUALITY.

Decades of strict central planning created serious disparities in
incomes among citizens in different regions. The average annual income
is high, for example, in Jiangsu province located in the eastern region,
but Guizhou, located in the western region, has a low income level. The
difference is quite enormous. For instance, in 1996, per capita annual
income of Jiangsu was 2613.54 yuan while in Guizhou it
was 609.80 yuan; the ratio between the two was 4.3:1. In the same year,
per capita GDP and the total GDP of the eastern region were 1.9 times
and 5.5 times larger, respectively, than those of the western region.

INTRA-URBAN INCOME INEQUALITY.

In addition to the gap between urban and rural areas, city dwellers also
feel the income inequality among themselves. According to the Urban
Socio-Economic Survey Organization of the State Statistics Bureau, in
the middle 1990s the per capita income of the top 20 percent income
earners was 4.2 times greater than the bottom 20 percent, worsened from
2.9 times in the later 1980s. Although many enterprises in urban areas
have either stopped working or closed down, many of the idle employees
who have been laid off are waiting for future employment that would
provide them the minimum incomes to maintain the basic standard of
living in the urban areas. Currently, many idle workers are either
receiving low incomes or no incomes at all. The wage level of retired
employees is also quite low, and, considering the effects of inflation,
their living standard is falling.

POVERTY REDUCTION.

About 10 percent of the Chinese population lives below the poverty line.
One of the largest challenges in China is poverty alleviation and
elimination. According to the World Bank, due to aggressive measures,
China has achieved great success in its anti-poverty struggle in the
past 2 decades. The impoverished population dropped from about 250
million in 1978 to 125 million in 1985 because rural areas experienced
economic growth. The Chinese government has been planning and organizing
a number of large-scale anti-poverty programs all over the country since
1986. By the end of 1992, the poverty population of rural China was
reduced to 80 million, reducing the poverty rate to 8.8 percent.

In 1994, in order to accelerate the poverty alleviation and ultimately
eliminate poverty by the end of last century, the Chinese government
launched the "8-7 Plan," the main point of which was to
eliminate absolute poverty in 7 years through the tax favorite policy,
financial support, and social-economic development program. For the
convenience of implementing the "8-7 Plan," the central
government selected the 592 poorest counties from the more than 2000
counties nationwide and designated them as "national poor
counties." It was estimated that more than 70 percent of the 80
million poor concentrated in these 592 counties had very bad natural
environments and under-developed social-economic conditions.

After 4 years, the poor population of rural China was reduced to 42.1
million, and the poverty rate was 4.6 percent by the end of 1998. The
Chinese government spent 24.8 billion yuan (US$3 billion) on poverty
alleviation in 1999, 30 times more than in 1980. Rural per capita income
among China's 870 million rural residents in 1999 was 2,210 yuan.
Only 3 percent of the rural population remained impoverished or living
below the 635-yuan standard, making China's rural poverty rate
the lowest among developing nations. In 2000, China announced that it
had eliminated "absolute poverty."

EMPLOYMENT PROBLEMS.

Chinese labor has benefitted significantly from economic reforms. During
the 8th 5-Year Plan (1991-95), real incomes increased by 7.7 percent
annually in urban areas and 4.5 percent annually in the countryside.
However some serious problems existed in the labor market, which
threatened to impede economic reforms and to disrupt social stability.
Increased lay-offs
(officially labeled as "temporarily losing a job"),
placing workers "off post" (
xiagang
), as well as delayed wage and pension payments, resulted in a number of
demonstrations by workers and retirees in several Chinese cities. Within
a certain period, typically 1 year, these "laid off"
workers are usually encouraged to take other types of jobs, generally
with less pay and/or status than their original positions. Many workers
also take second jobs. Some continue to draw a basic salary and benefits
from their previous employer for whom they do little or no real work. By
2001, the problems caused by the increasing lay-offs from SOEs, along
with several other issues, became the first worries of the
nation's leaders.

The official unemployment rate was officially reported to be 6 percent
by the end of 1990s. Labor officials readily admitted that the official
unemployment rate did not include 2 large and important groups that are
effectively unemployed, redundant state sector workers and rural surplus
laborers. By official estimate, the
underemployed
population in the countryside, defined as those with productive
employment less than half of the year, exceeds 200 million people. Some
probably more accurate estimates of urban unemployment vary anywhere
between 10 and 23 percent. Even according to the official unemployment
criteria, a report completed by China's State Commission for
economic restructuring in early 1997 projected that China could have 15
to 20 million unemployed urban workers by 2000. Meanwhile, it is
estimated that between the years 2000 and 2010 over 40 million new
entrants will be brought into the urban workforce.

LABOR LAW.

A national labor law effective 1 January 1995 codified earlier
regulations and provides a framework for labor reform. New provisions in
the law require workers at all types of businesses to sign labor
contracts with the employers; establish arbitration and inspection
divisions at all levels of government; set out a preliminary framework
for collective bargaining at all types of enterprises; and empower
managers to dismiss workers for economic reasons. However, the local
governments are less effective in enforcing strict worker safety and
overtime provisions of the Labor Law. As the result, industrial
accidents, particularly in the mining sector, claim a high number of
lives every year.

The Labor Law also requires localities to establish local minimum wages.
For instance, the monthly minimum wage in Beijing at the end of 1996 was
RMB 270 (approximately US$33); RMB 300 (approximately US$36) in
Shanghai; RMB 398 (approximately US$48) in Shenzhen; and RMB 140
(approximately US$17) in Guizhou province. Other parts of China,
including Guangdong, Jiangsu, and Shandong provinces, have created a
sliding scale of minimum rates for different trades and localities. The
minimum wage level determinations are generally higher than the local
poverty relief ceiling but lower than the current wage level of the
average worker.

Labor disputes, including delayed wages and strikes, have been
increasing over the last several years in China. The upward trend has
made some labor and union officials become defensive. The official media
continuously pay attention to worker abuse, invariably at small,
export-oriented foreign ventures with Asian (Hong Kong, Taiwan, South
Korea) investment. However, many unofficial observers indicate that
working conditions are generally worse in private Chinese enterprises
and in domestic small town and village enterprises, which are often
owned by local government. Most labor disputes are solved through
arbitration and recently some cases reached the courts. According to
official statistics, based on National Mediation Center and Labor Bureau
records, 48,121 labor disputes occurred nationwide in China during 1996.

ALL-CHINA FEDERATION OF TRADE UNIONS (ACFTU).

For the most part, unions in China maintain their primary function of
enhancing production and sustaining labor discipline, rather than
supporting worker rights. Local unions also perform a variety of social
and welfare functions, such as handling disability benefits and housing
funds and operating clubs, eating facilities, nurseries, and schools.
The All-China Federation of Trade Unions (ACFTU), the country's
only officially recognized workers' organization, remains focused
on the state sector. There is still little evidence to suggest that
ACFTU is being positioned to assume the new role of worker advocate
mandated by article seven of the labor law, although some union
officials at the working level may be increasingly interested in
representing the interests of workers, particularly on safety issues.

For the ACFTU, improving labor discipline and mobilizing workers to
achieve party and government goals are their primary objectives.
However, since the early 1980s, additional objectives have been to
increase productivity and encourage participation in, and support for,
economic reforms. Generally, the membership is limited to the workers in
SOEs. Over half of the country's non-agricultural workers are not
members of the ACFTU, those who are outside the state industrial
structure in collectives, private and individual enterprises,
foreign-in-vested enterprises, and township and village enterprises.

WORKING CONDITIONS.

The working conditions are generally poor in China, especially in the
rural areas. The rate of industrial accidents had remained high until
1996 when, according to Ministry of Labor statistics, for the first time
in many years the number of industrial accidents actually dropped. Total
accidents stood at 18,181, 13.5 percent less than in 1995, with total
fatalities at 17,231, a 13.9 percent drop from 1995. By 2001, there
was no evidence to confirm whether this decline represents a permanent
trend. The official media continue to criticize the overall high number
of work-related accidents and fatalities. The majority of industrial
accidents in China occur in mines, particularly in poorly regulated
small-scale private, township, and village mines. For instance, in 1996
there were 7,695 mining accidents and 9,974 workers were killed.

Work safety issues attracted the attention of senior government leaders;
occupational safety and health became the subject of constant campaigns.
All work units are required to designate a safety officer. Since 1991,
the Ministry of Labor has conducted an annual "industrial safety
week" during May, to promote safety consciousness among managers
and workers. As of mid-1997, the Ministry of Labor fulfilled new
National Occupational Safety and Health legislation. Labor Ministry
officials have also indicated that they have the responsibility of
drafting improved National Mine Safety legislation. However, much
evidence demonstrates that enforcement of existing regulations, rather
than the drafting of new legislation, is what is needed most. Moreover,
pressures for increased output, lack of financial resources to maintain
equipment, lack of concern by management, poor enforcement of existing
regulations, and a traditionally poor understanding of safety issues by
workers, all make it difficult, if not impossible, to lower the high
rate of accidents.

On 1 May 1995 China reduced the national standard workweek from 44 to 40
hours, excluding overtime. The Labor Law mandates a 24-hour rest period
weekly and does not allow overtime work in excess of 3 hours a day or 36
hours a month. The Labor Law also sets forth a required scale of
remuneration for overtime work that is set at no less than 150 percent
of normal wages. Enforcement of these regulations varies according to
region and type of enterprise. The official media regularly report cases
of workers required to work long overtime hours at small-scale
foreign-invested enterprises, particularly in special economic zones and
other areas of Southeast China. Similar abuses in non-state sector
enterprises are also widely acknowledged to occur.

WOMEN IN THE WORKFORCE.

Economic reforms have increased employment opportunities for both men
and women in China. The growth of the less regulated non-state sector
and the declining role of the government in job assignments has also
increased the likelihood that women will face employment discrimination
in China. In 1995 while hosting the U.N. Fourth World Conference on
Women (FWCW), China pledged to pay more attention to the problems faced
by women in the work-force. The state council promulgated the national
program for Chinese Women's Development in August 1995 with the
goal of increasing enforcement of the right to education and employment
and asserting the status of women. Responding to the hesitancy
demonstrated by government ministries to hire women at a Beijing job
fair in early 1996, the All-China Women's Federation (ACWF)
called for stricter safeguards of women's rights.

In SOEs, women are more likely to be forced into early retirement or
placed "off-post." A joint study of sample enterprises in
5 cities performed by the Ministry of Labor and the ILO in early 1995
indicated that 70 percent of workers described as
"surplus" were women. According to an official survey
completed in Shanghai in August 1996, women were the first to be
affected by unemployment in the city because of their overall lower
level of skills. The 1988 Women's Protection Law provides a
minimum of 3 months of maternity leave and additional childcare benefits
for women. The law also provides exclusion for breastfeeding mothers
from certain categories of physical labor and night shifts. However, the
regulations are designed to provide additional incentives to women
workers of childbearing age to abide by family planning policies, which
do not affect rural workers.

AGE DISCRIMINATION.

China perhaps is one of few countries that discriminates against middle
aged and older workers in terms of re-entering employment after being
laid off. Many employers will state openly in their job advertisements
that they would not hire those who are over 45 years old. Older workers
are also finding it increasingly difficult to compete. Some managers
complain that older workers do not have the skills needed for the
current marketplace; others note that older workers are in poor health.
Older workers are likely to be the first to be affected by downsizing in
the state sector. By all accounts, older women have an especially
difficult time maintaining their employment. Many older women are poorly
educated upon entry into the job force and receive little opportunity to
upgrade their skills thereafter. While managers may want to keep on a
certain number of experienced men, most view older women simply as a
burden. Older women find the differences in China's statutory
retirement age especially rankling. The retirement age for men is 60,
while for women it is 50 in industry and 55 elsewhere. Although
traditional views hold that women want to retire early to take care of
grandchildren, women today, especially educated women, prefer to make
this decision themselves and not be forced out of the workforce before
they are ready.

CHILD LABOR.

In theory, child labor is forbidden in China. For instance, the 1995
National Labor Law specifies, "No employing unit shall be allowed
to recruit juveniles under the age of 16." Administrative review,
fines, and revocation of business licenses of those businesses that hire
minors are specified in article 94 of the Labor Law. Chinese children
are entitled to receive 9
years of compulsory education and to receive their subsistence from
parents or guardians. Laborers between the ages of 16 and 18 are
referred to as "juvenile workers" and are prohibited from
engaging in certain forms of physical work including labor in mines. The
Labor Law mandates the establishment of labor inspection corps at all
administrative levels above county government. The rapid growth of
China's non-state sector has outpaced the evolution of government
inspection and enforcement regimes. However, in poorer, isolated areas,
child labor in agriculture is widespread given the few options available
to minors who have completed their primary school education at
approximately 13 years of age. According to official statistics, 10
million children between the ages of 6 and 14, two-thirds of whom were
girls, dropped out of Chinese primary schools during 1996. Presumably
they ended up performing some type of labor to help the family's
financial well-being.

OUTLOOK FOR CHINA'S ECONOMY.

The long-term outlook for the Chinese economy remains unclear.
China's commitment to join the WTO appears to represent a major
commitment on the part of the Chinese government to significant economic
reform and greater access to its domestic markets. Some observers
believe that the Chinese government views accession to the WTO as an
important, though painful, step towards making Chinese firms more
efficient and competitive in the world market. In addition, the
government hopes that
liberalized
trade rules will attract more foreign investment to China. It is
expected that over the long run a more open market system would boost
competition, improve productivity, and lower costs for consumers, as
well as for firms using imported goods as inputs for production.
Economic resources would be redirected towards more profitable ventures,
especially those in China's growing private sector. As a result,
China would likely experience more rapid economic growth than would
occur under current economic policies. It is estimated that WTO
membership would double China's trade and foreign investment
levels by the year 2005 and raise real GDP growth by an additional 0.5
percent per year.

In the short run, due to increased foreign competition, widespread
economic reforms (if implemented) could result in disruptions in certain
industries, especially unprofitable SOEs. As a result, many firms would
likely go bankrupt and many workers could lose their jobs. How the
government handles these disruptions will greatly determine the extent
and pace of future reforms. The central government appears to be
counting on trade liberalization to boost foreign investment and spur
overall economic growth; doing so would enable laid-off workers to be
employed in higher growth sectors, especially in the growing private
sector. However, the Chinese government is deeply concerned about
maintaining social stability. If trade liberalization were followed by a
severe economic slowdown, leading to widespread bankruptcies and
layoffs, the central government might choose to halt certain economic
reforms rather than risk possible political upheaval.

In February 1998 the officials announced their intentions to spend
US$750 billion on infrastructure development over the next 3 years,
although many analysts have questioned China's ability to obtain
funding for such a massive financial undertaking in such a short period
of time. It is likely that China intends to attract foreign investment
for much of its infrastructure needs.

However, Chinese restrictions on ownership, profits, and operational
control of major projects, China's demands for subsidized
financing and sharing of technology, and uncertainties regarding
obtaining approval from Chinese officials at the central and local
levels have made foreign investors reluctant to invest in major Chinese
infrastructure projects.

WEST REGION DEVELOPMENT.

The central government has decided to accelerate the economic
development in its west regions over the next few decades. China will
build more highways in its western region, including 2 linking the
heartland with the Tibet Autonomous Region, over the next 5 to 10 years.
There are already 3 highways linking the inland areas with Tibet. China
will also build another 14 main highways in the western region in the
coming 10 years. China will have completed a modern highway network in
the west by 2030. At the moment, roads in the western region are poor
and insufficient. There are only 7.8 kilometers of highways per 100
square kilometers in the region, only half the national average. China
has made the improvement of infrastructure the priority in its program
to develop the vast western region. This development is expected to
become one of the most dynamic forces in the country's economic
growth.

ENVIRONMENTAL PROTECTION.

The last 2 decades of rapid economic growth, urbanization, and
industrialization have been accompanied by steady deterioration of the
environment in China. The concentration of both air and water pollutants
are among the highest in the world, causing damage to human health and
lost agricultural productivity. Some major Chinese cities have
particulate and sulfur levels from 2 to 5 times World Health
Organization and Chinese standards. Soil erosion, deforestation,
and damage to wetlands and grasslands have resulted in deterioration of
the national ecosystems and pose a threat to future agricultural
sustainability.

China has already taken some steps to reduce pollution and deforestation
and has staved off an abrupt worsening of environmental conditions in
general. A system of pollution control programs and institutional
networks for environmental protection is being constructed at the
national and local levels. As part of the recent government
reorganization, China's environmental agency, the State
Environmental Protection Agency (SEPA), has been upgraded to full
ministerial rank and its coverage expanded to include the
"green" issues. For better urban and industrial pollution
control, China has focused increasingly on river basin management,
greater use of economic incentives, and increased use of public
information campaigns. Issues of vehicle emissions in urban areas are
being tackled through improved traffic management, public transport
initiatives, changes in transport fees, and phasing out of leaded gas,
which has already been implemented in the largest city centers. Coastal
zone management has been introduced, and energy conservation efforts and
the development of renewable sources of energy have been expanded.

Holmes, William D. "China's Financial Reforms in the
Global Market." Paper presented at the Conference on Regulation
of Capital Markets and Financial Services in the Pacific Rim,
Washington. Georgetown University Law Center, 11-13 November 1996.